Growth returns to one of the world’s fastest growing funds servicing centres

Ireland’s funds industry has been breaking new ground in 2010 and has fully recovered declines suffered as a result of the credit crisis in 2008/09 and has by certain measurements reached new heights. According to latest statistics from the Irish Central Bank published at the end of May, the total assets of Irish domiciled funds is €856 billion compared to the previous peak of €808 billion in 2007. This also marks a big turn around from just two years ago in 2008 when total assets fell to €647 billion. The assets under administration in Ireland have also risen from the low point in the second quarter of 2009 when AUA was €1,200 billion to the first quarter of 2010 when AUA was €1,606 billion.

Supporting these trends has been redomicilations of funds in 2010 and robust but imaginative regulation by the Financial Regulator.

This rise is in line with the return in growth in European funds and the world. Investment fund assets worldwide increased by 4.2 per cent in the fourth quarter of 2009, to reach €15.9 trillion at end 2009 and in Europe net inflows into UCITS totalled €49 billion in the first quarter of 2010, compared to €1 billion in the fourth quarter of 2009. ‘Long-term UCITS’ (UCITS excluding money market funds) enjoyed net inflows (€ 87 billion) in the first quarter of 2010. Such a high level of net inflows has not been recorded since the first quarter of 2006, according to EFAMA, the EU investment funds body.

Ireland is benefitting from this global growth trend but its growth is, however, uniquely strong and it is the biggest grower of all the major European fund centres. Looking at the development in the major fund markets in the first quarter of 2010, all countries experienced asset growth except Italy and Spain. Ireland enjoyed the strongest asset growth 9.2 per cent, followed by Luxembourg 7.4 per cent, the United Kingdom 6.8 per cent, and France 1.6 per cent. UCITS domiciled in Italy and Spain declined in the first quarter, albeit by less than 1 percent.

International developments fueling growth
A number of factors laid the groundwork for Ireland’s rise as a funds centre over the past 20 years. Some factors include: the competitive regulatory and tax regime established by the Irish Government set up in 1987 and continued over the past twenty (discussed in more detail on page 11). The time zone has been a big advantage for UK based fund managers who wanted an adminstrator who is contactable during their working hours. And increasingly over the years the access to a full range of services and the unique expertise in the centre. Another telling factor is Ireland’s position as a gateway into Europe and this is evidenced in the use of Ireland as a hub for UCITS funds. Access to Europe has become even more of a factor as fund managers have become more wary of the impact of new regulations, such as the Alternative Investment Fund Managers Directive, that may limit their access to European investors. Allied to this has been the increasing pressure by the G20 and independent jurisdictions against offshore centres. Ireland offers an alternative as a regulated funds jurisdiction.

Its European Union membership and the fact that it was included on the OECD’s ‘white list’ of countries that have substantially implemented internationally agreed tax standards sets it aside from some offshore centres. As a result some hedge fund managers have redomiciled funds in Ireland from other traditional offshore centres such as the Cayman Islands and the British Virgin Islands. And while not every hedge fund manager are pulling their funds out of these traditional centres they are looking to create complimentary UCITS funds as well as their Cayman based hedge funds to avoid getting caught out by regulatory moves against offshore centres.

This flurry of activity has attracted a number of international law firms to enter the Irish market for instance, Walkers, Dechert, Eversheds, and Simmons and Simmons have all opened or will soon open funds practices in Dublin.